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Entergy New Orleans customers pick up tab as Texas exits power station deal

entergy

An Entergy worker works on a power line on Williams Boulevard near the Pontchartrain Center in Kenner as a pair of nearby power lines were knocked down due to the heavy rains that passed through the area Wednesday, April 15, 2015. (Photo by Peter G. Forest)

Entergy customers in New Orleans will absorb a larger share of the cost to buy an Arkansas power plant after the company's Texas subsidiary announced plans to exit the $948 million deal. The purchase is expected to close later this year.

Entergy Gulf States, Entergy Texas and Entergy Arkansas agreed to share the cost of the purchase, while Entergy New Orleans would buy a small portion of the electricity generated by the plant.

Entergy Texas asked utility regulators Friday (July 17) to allow it to pull out of the deal after facing growing opposition from state leaders and industry groups. Opponents felt the project was unnecessary and too costly for the more than 427,000 Entergy ratepayers in Texas.

According to a news release, Entergy New Orleans will now buy the generating unit originally slated for Entergy Texas, one of four units located at Union Power Station. The purchase will cost $237 million total.

The New Orleans City Council still needs to approve the change. Later on, it will oversee how much cost Entergy can recover from customers.

Entergy New Orleans spokeswoman Charlotte Cavell said in an email the company is still analyzing the cost of purchasing the unit. It will include details in a formal filing with the council in coming weeks.

What is clear is New Orleans customers will be paying more than originally planned. Entergy and ratepayer advocates say the benefits to New Orleans customers will outweigh the cost of the project in the long-term.

Under the original agreement, Entergy New Orleans agreed to buy 20 percent of the power generated by the two natural gas-fired units purchased by Entergy Gulf States. The company will purchase one of the Union Power Station units in lieu of the purchased power agreement.

Entergy Gulf States will still purchase two of the generating units. Entergy Arkansas will buy the remaining unit.

In a news release, Entergy New Orleans CEO Charles Rice said customers benefit from access to "clean, reliable and low-cost energy" under the revised deal. Rice said the cost of Union Power Station -- about $479 per kilowatt -- is roughly half the cost of building a comparable new power plant.

Cavell said the cost of purchasing the whole unit will be higher, but so will the value of the benefits to New Orleans customers.

Casey DeMoss Roberts, CEO of the Alliance for Affordable Energy, a New Orleans consumer advocacy group, called the purchase a "good deal" for local Entergy customers.

Entergy has announced plans to shut down its Michoud power plant in eastern New Orleans in June 2016. Roberts said buying the Union Power Station unit will replace most of the Michoud generating capacity without the uncertainty of buying power on the open market, which could rise in cost over time, she said.

"Buying a unit means we don't have to renegotiate later," Roberts said. "We lock in these cheap rate for ratepayer for a long time."

The deal comes as Entergy readies for a surge in electricity demand, particularly in Louisiana where a number of major industrial projects are planned. Electricity demand in Louisiana alone is expected to jump by as much as 1,600 megawatts by 2019, according to the company's own estimates.

The Union Power Station, completed in 2003, can generate up to 1,980 megawatts of power. Entegra Power Group, an independent power producer based in Tampa, Fla., is selling the plant.